Q1

The following figures have been taken from the budget of a company called U & H Plc., in the retail trade
for the year ended 31 December 2021. January 5,000 February 6,000 March 7,000 April 5,000 Sales
(Units) The following information is available: (i) The selling price per unit is £7. It will increase to £8 per
unit from April and in subsequent months. 25% of budgeted sales’ revenue is expected to be received in
the month of sale, 70% of budgeted sales in the following month, while 5% of budgeted sales are
expected to result in bad debts. (ii) The budgeted number of units in inventory at the end of each month
is equal to the budgeted sales for the following month. (iii) The business is seasonal, and, as indicated in
the above budget, results in April are expected to be similar to those in January. There is a three-month
cycle, so the results in May and June are expected to be similar to those in February and March,
respectively.Questions: 1. What is the total amount of cash collected in January? (i) £42,000 (ii) £36,700
(iii) £43,050 (iv) £40,825 2. What is the total amount of cash collected in February? (i) £31,000 4 (ii)
£49,000 (iii) £35,000 (iv) £29,400 3. What is the total amount of cash collected in March? (i) £41,650 (ii)
£60,000 (iii) £47,250 (iv) £34,000 4. What is the total sales figure for January? (i) £16,000 (ii) £39,000 (iii)
£35,000 (iv) £29,000 5. What is the total sales figure for February? (i) £ 32,000 (ii) £64,000 (iii) £42,000
(iv) £43,500

Q2

Scenario: International B & L Ltd. wishes to engage in a 5-year project of producing domestic innovative
children’s wears that are biodegradable and they come in three different designs. The research
conducted by a specialised team, working solely on this project incurred a cost of £85,000 over the
course of two years of conducting both their technical and market research. The company currently
borrows at the rate of 20%, i.e., its cost of capital. Below are the forecast figures, which have been
provided by the relevant experts within the company: It is anticipated that the yearly profit will be as
follows: Year 1 250 Year 2 100 Year 3 100 Year 4 150 Year 5 55 Years Yearly profit £’000. The company
will need to immediately buy a special machine for the project, which costs £500,000. The machine has a
residual value of £50,000 after five years (i.e., the machine can be sold as scrap for £50,000 after its
useful life of 5 years). The company uses the straight-line depreciation method. 20% DF (Discount factor)
Year Discount factor. 0 1 1 0.833 2 0.694 3 0.579 4 0.482 5 0.402 Required: Conduct a project appraisal
project using relevant techniques, namely: Payback period method; ARR (Accounting rate of return) and
NPV (Net present value). Advise International B & L Ltd. if they should embark on the project or not, and
justify your reasons using the results from your computations. Explain your reasons for your answer in
this regard.6. What is the payback period? (i) 2 years and 9 months (ii) 4 years and 3 months (iii) 1 year
and 10 months (iv) 3 years and 3 months 7. What is the depreciation figure? (i) £90,000 (ii) £200,000 (iii)
£120,000 (iv) £55,000 7 8. What is the net present value (NPV) figure? (i) £334,110 (ii) £223,500 (iii)
£122,659 (iv) £219,160 9. What is the ARR (Accounting rate of return), where ARR is: Average Annual
Profits x 100% Original Investment (i) 11.8% (ii) 16.4% (iii) 18.2% (iv) 26.2% 10. What is the ARR
(Accounting rate of return), where ARR is: Average Annual Profits x 100% Average investment (i) 33.6.9%
(ii) 39.5% (iii) 47.6% (iv) 31.8%

Q3

Sections 3 - Sources of finance questions: Use the information below to answer questions 11 – 14 HB
& HH Plc. has 10 million ordinary shares of 50p. These shares are currently valued on the London
Stock Exchange for £1.85 per share. The directors have decided to make a one-for-five issue (i.e. one
new share for every five shares held) at £1.65 per share. 11. What is theoretical ex-rights price? (i)
£1.766 (ii) £1.926 (iii) £1.816 (iv) £1.926 12. What is the value of the offer? 10 (i) £0.166 (ii) £1.366
(iii) £1.1266 (iv) £0.176 13. Which of the following statement(s) is true? (Select the correct option
from below the following statements). (i) The theoretical ex-rights price is the market value of
shares (ii) The theoretical ex-rights price is the market share price, theoretically speaking after a
rights issue (iii) The theoretical ex-rights price is the internal price of shares (iv) The theoretical ex-
rights price is the price investors wish to pay for shares (a) (i) only (b) (ii) only (c) (i) and (ii) (d) (i) and
(iii) 14. Which of the following statement(s) is/are true? (Select the correct option from below the
following statements). (i) Rights issues requires the managers to offer new shares to existing
shareholders before offering the same to the members of the public (ii) Rights issues are normally
issued at a premium (iii) Rights issues are normally issued at a discount (a) (i) only (b) (ii) only 11 (c)
(i) and (ii) (d) (i) and (iii) 15. Which of the following is not an example of sources of finance? (i)
Corporate bonds (ii) Issue of shares (iii) Bonus shares (iv) Preference shares

Q4

Section 4 - Foreign exchange questions: Use the information below to answer questions 16 - 17 HSH
& Counties Plc. has to pay an American supplier $400,000 in one month’s time, and the forward rate
and spot rate rates are $1.3915 = £1 and $1.4115 = £1, respectively. 16. What is the value of
payment using the forward rate? (i) £283,386 (ii) £287,459 (iii) £294,566 (iv) £285,622 17. Which of
the following statements is true, in relation to the scenario above? (i) The choice would be to make
use of the forward rate because it gives the higher value of the two options (ii) Always seek to use
the market rate (iii) The choice would be to make use of the spot rate because it gives the lower
value of the two options 12 (iv) No choice should be made on this occasion 18. Which of the
following statements is false? (i) The internal hedging technique is usually easy and straightforward
to be arranged - without the input of a third party or a financial institution (ii) External hedging is
better than internal as it is more cost effective (iii) The internal hedging technique can be used to
reduce foreign exchange risk (iv) Foreign exchange rate is not always predictable Use the
information below to answer questions 19 - 20 Stig & Hace Plc. manufacture and export clothing
items to a number of clothing departments in the USA and Europe. It is due to receive $600,000 in
six months’ time from goods supplied to a US customer. The six-month US $ forward rate is: 1.4250
– 1.4300. The spot rate is 1.4660 – 1.4860. 19. What is the sterling receipt if the company decides to
hedge using a forwardexchange contract? (i) £421,052 (ii) £419,580 (iii) £409,277 (iv) £403,768 20.
What is the sterling receipt if the company decides to make use of the spot rate? (i) £421,052 (ii)
£419,580 (iii) £409,277 (iv) £403,768